Is THIS a Bear Market?

In the March 2025 commentary I shared insight that the “market was worse than it appears”. The main culprit was the uncertainty surrounding tariffs and what it means for inflation, world trade and general health of the US economy.

This had many parts of the market looking much worse than the palatable losses for the larger, safer stocks in the S&P 500. That storyline took a decided turn for the worse last week when the Trump administration unveiled their latest tariff plans.

Yes, all politicians have an “estranged” relationship with the truth. In this case there is nothing “reciprocal” about the tariffs as it conflates trade deficits with tariffs leading to tremendous disappointment by investors.

The result is increased fear of inflation and recession pushing the S&P 500 to the brink of bear market territory on Monday (4,918 = 20% off the all time highs).

We need to dig into the facts in hand to see if a bear market is a certainty at this point.

Or is there reason for some optimism that we go this far and no farther???

That will be at the heart of this month’s Zen Investor commentary. 

Market Commentary

The main contemplation at this time is whether we are headed towards a bear market. If so, then what does that mean for our investment plan?

Let’s start by clarifying that closing below 4,918 for the S&P 500 = bear market territory because that is 20% below the all time highs.

Right now, the answer is no...we are not officially in a bear market. But the tug of war is far from over and could get pulled into bear territory.

Monday was a close call as stocks started off the week in ugly fashion tumbling as low as 4,835 on the session before bouncing to a near breakeven finish at 5,062.

Tuesday was an interesting session up nearly 4% early in the morning at 5,267 before traders used that spike to take some more money off the table. This erased all the early gains and then some.

Most technicians would tell you that these are the classic signs of a capitulation. That being when the selling pressure of the market is flushed out in dramatic fashion giving rise to stocks in the days that follow.

The vital thing that is never clear at first with a capitulation is whether it means disaster averted and right back to bull market conditions. Or is it a temporary bounce with more pain ahead???

I know how dramatic recent events make it seem like a bear market is the forgone conclusion. However, in the past two decades there have been 3 equivalent corrections that got right to the border of bear market territory before a lasting bounce and bull market conditions prevailed.

I am referring to the 20% corrections of 2011, 2015/2016 and 2018. Knowing how often this has happened in the recent past does provide some solace.

However, it would be foolish not to appreciate that the odds of a recession and bear market have great increased. This draws us back to a conversation about what is causing this mess.

TARIFFS

As the US tariff plans stand now, they are most certainly inflationary thus increasing the odds of recession and bear market. This clearly explains the market reaction of late. Perhaps the Trump administration knows this...perhaps not.

This leads to 2 possibilities on how this plays out from here:

1) Negotiating ploy to make every key trade partner make some kind of concessions with more agreeable tariff terms to follow. If unfolds quickly, then disaster averted and bull market gets back on track.

To be clear, this could be a prolonged process where there is much back and forth as trade negotiations evolve. Of greatest importance is how things turn out with our main trade partners China, Mexico, Canada and Europe. Meaning you should not waste your time on the headlines about Cambodia, Lesotho and other minor trade partners.  

This could have us retreating to the brink of bear market territory many times over before the battle is won and bull market proves victorious. Meaning you should NOT expect quick resolution or smooth sailing.  

2) Trump administration doesn’t understand economics and doesn’t truly appreciate that trade deficits and tariffs are two VERY different things. Staying on this path is the road to ruin with more inflation on the way harming the consumer that greatly increases odds of a recession and deeper bear market.

Also in the long haul it makes the US look like a bully that only motivates the rest of the world to gang up on us and remove the US dollar as the leading currency. This change would be a painful penalty for not appreciating the many benefits we have enjoyed with the US dollar at the center of the world economy.

A business friend of mine based in Hong Kong says that the reaction from most folks he talked to is a big laugh that this only increases the odds of China taking the helm from the US for world trade as we are making so many unnecessary enemies at this time. 

John Mauldin as per usual does a wonderful job talking about the broad tariff conversation and how there is nothing “reciprocal” about them. A good read if you have a bit more time: The Tariff Recession?

My favorite part of this article is about him saying this is not the end of the world as US corporations are so good at adapting to change. They just need to know what the true final plans are so they can make necessary adjustments.

This fits in with my complaints in recent commentary about the lack of transparency on the part of the Trump administration which generates uncertainty...and all the negative side effects of that like weakening economy and tanking stock market.

Hopefully more transparency and reasonableness are on the way with trade talks. That increases odds of this being nothing more than a stiff correction in the midst of a long term bull market. The best part of that story is that valuations are now more attractive leading to welcome gains in the months ahead.

This scenario would just be business as usual for the long term focused Zen Investor portfolio. No doubt many of our recent big losers would once again become our biggest winners. Thus rewarding us for the patience to hold on.

Then we use this dip to add more attractive long term growth stocks to the portfolio at more appealing entry points.

On the other hand, if we are headed towards recession and bear market (which I put at 40-50% likelihood) then there is more downside to come.

Note the average bear market lasts for 13 months with a 34% average drop from the peak. That equates to 4,057 for the S&P 500. Meaning that right now we are a little over half way to the bottom in percentage terms...but likely much more time left on the clock to find bottom.

Of course bear markets are not cookie cutter events as they vary greatly in depth and length. But there is nothing about this event that says to me it will be much worse than average.

Meaning this is not the 2008/2009 Great Recession revisited. More of the run of the mill recession that makes way for the next economic expansion and long term bull market.

I have been investing since 1980. First, with the help of my father who was a seasoned Certified Financial Planner...then on my own as a professional in the field.

This time frame includes 7 bear markets and 8 bull markets and just about everything else between including the Great Recession and Covid Crisis which are truly unique events.

The point is that I have seen my share of events and have become a pretty cool customer allowing me to do what is right as most others panic.  

Unfortunately, there is very little in that 45 years that matches what we are dealing with now.

Yes, Trump tried his hand at trade deals in late 2018 that led to a modest correction before the bull market got back on track. The lesson learned from that foray is that he likes to make outrageous demands that are part of a negotiating ploy to get better terms.

That worked out fine last time and best equates to the first of the two scenarios shared earlier about this being yet another negotiating ploy. That does give us some reason for hope and optimism.

Unfortunately, we seem to be taking on too many countries at the same time with the current strategy with some very “suspicious” math in our tariff calculation that is really an ill advised approach focused on trade deficits.

Again, hopefully just aggressive negotiating tactic that is retracted soon for more reasonable terms. But if not...then watch out below!

We are prepared for either outcome. It just may take a bit of time to get the answer. Likely a bearish answer would come sooner and bullish would take a bit more time to prove out.

I most certainly will provide updates as necessary. 

What To Do Next?

Discover the Zen Investor service where I share a detailed investment plan and portfolio with top stock recommendations that are geared for today’s volatile market environment. 

Again, I have been investing for 45 years allowing me to learn lessons from 7 bear markets…8 bull markets and just about everything else the “Mr. Market” can throw at us. 

I use this knowledge to create a detailed investment plan. Then lean into our proven Zen Ratings quant model that has produced an average +32.52% annual return since 2003. 

In total the Zen Investor portfolio now has 16 stocks that are hand picked for today’s unique market landscape.  

That includes 2 new stocks added in early April to stand up to recent market volatility and yet provide attractive upside. 

If you are curious to learn more, and want to see my current top stocks, then please click the link below to get started now. 

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Wishing you a world of investment success!

Steve Reitmeister…but everyone calls me Reity (pronounced “Righty”)

Editor of the Zen Investor

What to Do Next?

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